Working Paper: CEPR ID: DP17918
Authors: Michel Habib; Yushi Peng; Yanjie Wang; Zexi Wang
Abstract: We examine the roles of bank ownership and CEO political faction membership in facilitating or hindering the implementation of central bank policy in China. Specifically, we examine the response of China's commercial banks to People's Bank of China (PBC) guidelines intended to decrease mortgage lending and to slow down the rise in residential property prices. We find that both bank ownership and faction membership matter. Central government-owned banks whose CEOs are members of the specialist finance faction within the Chinese Communist Party (CCP) respond most strongly to PBC guidance, whereas provincial or city government-owned banks whose CEOs are members of a generalist faction respond least strongly. The implementation of PBC policy has real effects: in those cities where central government-owned banks with specialist CEOs constitute a larger percentage of total bank branches, house prices grew more slowly, as did the number of residential real estate transactions and the number of new listings. Where in contrast provincial and city government-owned banks with generalist CEOs dominate, the number of transactions grew faster; the rate of house price appreciation and the number of listings were however unaffected. We conclude that China's different levels of government and the CCP's different factions enjoy some discretion in responding to PBC guidance and that they exploit the discretion they are afforded to vary the strength of their response.
Keywords: bank ownership; central bank policy; mortgage loans; CEO political factions
JEL Codes: E58; G21; R30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| central government-owned banks with specialist CEOs (E58) | increase in down payment requirements (G21) |
| central government-owned banks with specialist CEOs (E58) | increase in mortgage interest rates (E43) |
| provincial and city government-owned banks with generalist faction CEOs (G21) | slower adjustments in lending practices (G21) |
| larger percentage of central government-owned banks with specialist CEOs (E58) | slower growth in house prices (R31) |
| larger percentage of central government-owned banks with specialist CEOs (E58) | decrease in residential real estate transactions (R31) |
| implementation of PBC policy (D78) | negative impact on house price appreciation (R31) |
| implementation of PBC policy (D78) | negative impact on transaction volumes (F69) |
| bank ownership and CEO faction membership (G28) | implementation of central bank policies (E58) |